Buyer’s guide to health cash plans

Focus on facts

What are health cash plans?

For a premium, these reimburse members for the partial or full cost of a range of everyday health treatments. Typically, the benefits included in a cash plan are dental and optical care, onsite health screening, physiotherapy and employee assistance programmes.

What are the origins of health cash plans?

These date back to the 1870s when they were known as Hospital Saturday Funds, and were created to help people access healthcare that they otherwise could not afford. Originally, workers would pay one penny for every pound
they earned towards the cost of medical treatment. When the National Health Service (NHS) was formed in 1948, cash plan providers reshuffled their services to reimburse members for care that was not covered by the NHS.

Where can employers get more information and advice on health cash plans?

Trade body the British Health Care Association (BHCA) represents not-for-profit organisations, including most health cash plan providers. Visit the website or phone 01536 519960. For news and features on health cash plans, click here.

In practice

What is the annual spend on health cash plans?

According to Laing and Buisson’s Health and Care Cover – UK Market Report 2010, 2009 saw a decrease in health cash plan spending as contribution income reached £488 million, compared with £510 million in 2008. Spending on company-paid cash plans was estimated at £46 million, while the figure for employee-paid plans was estimated at £443 million.

Which providers have the biggest market share?

According to Laing and Buisson, for totalcash plan spending in 2009, Simplyhealth, an amalgamation of HSA, BCWA, HealthSure, LHF and Totally Active, had the largest share. Westfield Health and BHSF also hold large shares of the market. Other providers include HSF Health Plan, Health Shield, Medicash, Bupa, Sovereign Health Care, Aviva, Axa PPP Healthcare, National Friendly, UK Healthcare and Paycare.

Which providers have increased their share over the past year?

HSF Health Plan increased its share by 0.5% from 5%, and Health Shield increased its share from 3.5% to 4.5%.

Nuts and bolts

What are the costs involved?

The cost to an employer of implementing a health cash plan starts at around £1 a week per employee, with an average cost of £6 a month. An employee-paid scheme can start at around £1.25 a week.

What are the legal implications?

There are no legal implications around implementing a health cash plan, but it does help an employer fulfil its duty-of-care obligations to employees.

What are the tax issues?

Company-paid health cash plans are treated as a benefit in kind for tax purposes. The value of the benefit is determined by the premiums paid, not the cash that is paid back.

Health cash plans can be a cost-effective way for employers to bridge the gap between NHS services and private medical insurance for employees, says Tynan Barton

Health cash plans have a long heritage that predates the National Health Service (NHS) back to the 1870s. They were created as a form of health insurance for people who could not afford to pay for healthcare. In their earliest form, cash plans were referred to as Hospital Saturday Funds and allowed workers to contribute a small amount of their earnings on payday, traditionally a Saturday, to pay for medical care when needed.

Cash plans enable members to claim back partial or full reimbursement for a range of day-to-day healthcare treatments, such as dental and optical visits, as well as alternative therapies, hospital stays, onsite health screening, physiotherapy and employee assistance programmes (EAPs).

In 2010, Westfield Health introduced cognitive behavioural therapy (CBT) into its cash plan, to provide treatment for mental health conditions such as depression and anxiety disorders.

Employers can either fund cash plans themselves, share the cost with employees, or offer them to staff on a voluntary basis. Employees will usually pay for the initial treatment when it takes place, and receive reimbursement after submitting a claim to the provider.

Paul Gambon, head of sales at Medicash, says: “Cash plans are designed as a way of effectively saving for all needs. A monthly amount is paid in, and then, when the employee needs treatment, instead of putting it off because they cannot afford it, they can dip into their mini savings pot and pay for the treatment.”

However, employees are limited to annual maximums for claims, so a plan may not always cover the cost of treatment. The higher level of cover an individual has, the greater the value of the annual maximum they can claim back.

The low-cost nature of cash plans means they are considered a cost-effective way for employers to meet a range of health objectives or needs within the workplace.

Russ Piper, chief executive of Sovereign Health Care, says employers should also view health cash plans in the context of a wider benefits strategy. “For example, a plan could be used to supplement remuneration because it provides a range of everyday healthcare benefits that people can access, yet because the P11D benefit on it is only on the premium element, not the benefit, it can be a cost-effective way to improve the remuneration package,” he says.

Cost-effective option

As a result of pressures caused by the economic downturn, the relatively low cost of cash plans makes them a cost-effective option that can be offered when budgets are tight, perhaps when employers are unable to offer pay increases for staff, but want to offer something extra. Medicash’s Gambon says: “Pay rises and bonuses may be out of the question, so employers are looking at other ways they can attract, motivate, reward and retain staff.”

Because health cash plans tend to stay at a relatively fixed cost, where these are employer-funded, it is a simple benefit to budget for.

This may be behind the slight increase in the proportion of employers offering cash plans as a core benefit over the past few years. For example, according to the Employee Benefits/HSF Health Plan Healthcare Research 2010, published last June, this percentage rose from 5% in 2008 to 8% last year.

While the percentage of cash plans offered as a voluntary benefit has been relatively stable over the past three years, offering the benefit through a flexible benefits scheme has also gained slightly in popularity.

Cash plans are often used as a complementary benefit to private medical insurance (PMI). For example, where PMI is offered only to senior managers within a workforce, the employer may choose to offer a cash plan to the rest of the workforce. Philip Wood, executive director of sales and marketing at Health Shield, says key drivers of growth in the market are employers’ focus on issues such as demonstrating a caring ethos, their duty of care, supporting employee health and wellbeing, and the cost-effectiveness of integrating a health cash plan into an organisation-wide employee benefits package.

“While previously a lot of employers had PMI for senior managers or the top tier of staff, the health cash plan is now coming to the fore because it provides everyday health care for everybody,” he says. “It complements PMI well because it fits into the holistic provision of health and wellbeing benefits.”

Better fit for younger staff

Cash plans are often considered to be a better fit as regards the health and wellbeing of younger employees, especially those who may not see the full value of PMI because they are relatively fit and healthy.

“We have found that while PMI is an affluent benefit that some people value, many younger people do not value it,” says Wood. “In many cases, PMI is not something that could be offered organisation-wide, but it fits well when offered together with a cash plan.”

Some employers therefore provide cash plans to employee groups that do not receive PMI, while others offer them to all staff. Emma Exelby, sales manager at Bupa Cash Plan, says some employers are seeing the benefit of providing cover for a range of treatments through a single scheme. “It may well be that employers are in a position to provide PMI for all their employees, and they would also like more of a rounded solution that offers things like dental and optical,” she says.

Offering a health cash plan through a flexible benefits plan can also help to enhance employees’ take-home pay by giving them money back towards healthcare costs. Jill Davies, chief executive officer of Westfield Health, says: “The cash plan is a hot contender for flex schemes because the employer sees it as giving more back into wages.”

Current healthcare issues, such as the government’s reform of the NHS and its review into sickness absence, have also increased the focus on the health and wellbeing of employees and the employer’s role in providing healthcare cover. Lee Andre, marketing manager at HSF Health Plan, says: “Recent developments, threats to the NHS and certain changes that are going to happen may result in people wanting to find alternative provisions.”

For example, Andre suggests that enabling employees to access a doctor by telephone through a cash plan will go some way to mitigating the impact of any potential cutbacks on the ability to actually see a doctor.

Filling the gap between NHS and PMI

These developments highlight the niche between the services available through the NHS, and those covered by PMI a gap that cash plans are well suited to fill, says Mike Izzard, managing director of Premier Choice Group. “There is great potential in the current climate for cash plans to become ever more mainstream and take up some of the slack at the lower-cost end of PMI,” he says.

Cash plans can achieve this where a higher level of cover is taken out in return for a higher premium, which can further close the gap between cash plans and PMI, says Izzard.

Meanwhile, the Financial Services Authority’s Solvency II directive, which comes into effect in November 2012, looks set to bring fundamental change to the entire insurance industry, not just the health cash plan market.

The directive aims to implement solvency requirements for all European Union insurers and reinsurers that better reflect the risks organisations face, and reduce the possibility of consumer loss or market disruption.

Westfield Health’s Davies says: “It gives us opportunities, as well as raises the bar in terms of the competitive nature. It also puts providers on an even footing because employers will get consistency of approach.”

However, there is a fear that the directive will have an impact on smaller providers because they will have to prove they have the necessary capital and reserves to be able to continue offering a service.

“Solvency II will affect the whole market, but particularly smaller cash plan providers due to the demands of actuarial valuations and the costs that are imposed,” says Wood.

Going forward, therefore, employers must ensure their health cash plan provider is robust enough to continue to provide the services they require, for example, by examining its annual reports and reserves in the market.

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